Introduction

Businesses must distinguish between interstate and intrastate supply under the GST system to determine the right tax. These categories affect whether IGST or CGST/SGST applies.

When goods or services cross states or Union Territories, IGST applies. Intrastate supplies require CGST and SGST since the provider and recipient are in the same state.

Understanding these ideas ensures tax compliance, input tax credit use, and corporate efficiency. Misidentifications of supply types might affect cash flow and fines. This blog helps businesses understand GST requirements by explaining interstate and intrastate supply, including their benefits, examples, and contrasts.

What is Interstate Supply in GST?

Under the GST, the provision of goods or services is known as an interstate supply when a provider and a beneficiary live in different states or Union Territories. Stated differently, a provider is considered interstate if goods or services are moved between states.

Key Features of Interstate Supply:

1. The supplier and the place of supply are in different states or Union Territories.
2. Supplier and supply facility are in the same state.
3. Intrastate supplies are subject to CGST and SGST.

Examples of Interstate Supply:

• Since the goods are being shipped from Maharashtra to Karnataka, this is a national trade.
• A client in Tamil Nadu hires a digital marketing company in Delhi to do work for them. The service recipient's location in a separate state qualifies this as an interstate supply.

In every instance, IGST is applicable.

What is Intrastate Supply in GST?

Supplies between the provider and point of supply, in the same state, or in the Union Territory will be taken into account as intrastate by the GST. In such a kind of transaction, CGST and SGST are counted.

Key Features of Intrastate Supply:

1. The supplier and the location of supply are located in the same state.
2. The supply site and supplier are in the same state.
3. In intrastate supplies, CGST (Central GST) and SGST (State GST) are applicable.
4. The GST rate is fairly distributed between CGST and SGST.

Intrastate Supply Examples:

• One consumer in Jaipur buys cakes from a Rajasthani bakery. This is an intrastate supply as the client and the supplier live in Rajasthan.
• An Amritsar customer buys clothes from a Punjabi business. Being in Punjab, the supply is intrastate.

Both CGST and SGST are relevant in each of these instances.

Which Tax is Applicable on Interstate Sale?

The IGST is applicable on interstate sales. IGST is a single bearing tax bore by the central government from which share falls to the states where the commodities or administrations are enjoyed.

How to Calculate IGST:

The GST rate applies to an interstate sale as a single IGST amount.

• Example: If you sell goods worth ₹50,000 at an 18% GST rate, the IGST amount is: ₹50,000 x 18% = ₹9,000 (IGST)

Which Tax is Applicable on Intrastate Sale?

On intrastate sales, both CGST and SGST are applicable. These two taxes split the total GST rate equally.

For instance, if you are marketing items valued ₹50,000 at 18% GST rate:

• ₹50,000 x 9% = ₹4,500 (CGST)
• ₹50,000 x 9% = ₹4,500 (SGST)

SGST + CGST makes the total GST = ₹9,000.

GST Interstate and Intrastate Supply Rates

For intrastate as well as interstate deliveries, the GST rates lie in four primary slabs: 5%, 12%, 18%, and 28%. Rates apply to any type of supply, interstate or intrastate.

Example of GST Rates:

• Essential Goods (5% GST):
  • Interstate Supply: Full 5% IGST
  • Intrastate Supply: 2.5% CGST + 2.5% SGST
• Standard Goods (18% GST):
  • Interstate Supply: Full 18% IGST
  • Intrastate Supply: 9% CGST + 9% SGST
• Luxury Goods (28% GST):
  • Interstate Supply: Full 28% IGST
  • Intrastate Supply: 14% CGST + 14% SGST

Interstate vs. Intrastate: Which is Better?

In the context of GST, these two options have their own respective pluses when varying set on company goals, logistics, and compliance needs. The best option is dependent on market reach, cost-effectiveness, and use of input tax.

Advantages of Interstate Supply

• Wider Market Reach: Interstate supply lets companies contact clients all throughout India, outside of their own state.
  
  
• Input Tax Credit Flexibility: Utilizing the IGST you pay for interstate goods can help you balance your IGST, CGST, and SGST obligations.
  
  
• Simplified Compliance: Businesses only need to deal with a single tax—IGST, simplifying GST return filing.

Advantages of Intrastate Supply

• Lower Logistics Costs: Intrastate supplies involve delivering goods within the same state, reducing transportation costs and delivery times.
• Easier Compliance: Dealing with home state regulations reduces risk of compliance errors.
• Faster Delivery Times: Ensures quicker turnaround times, enhancing customer satisfaction.

Which is Better?

• For Small Businesses: Intrastate supply may be better due to lower logistical complexity and faster deliveries.
• For Growing Businesses: Interstate supply is advantageous for nationwide reach and input tax credit flexibility.

How is Interstate GST Calculated?

When a supply of goods or services crosses two separate states or Union Territories in India, interstate GST (IGST) is relevant. The federal government gathers the single tax under the GST framework.

Steps to Calculate Interstate GST:

1. Identify the GST Rate: Find the GST rate for your products or services.
2. Determine the Transaction Value: Includes product price, shipping, handling, and packaging charges.
3. Apply the IGST Rate: Use the transaction value to calculate the IGST amount.

Formula for IGST Calculation:

IGST = Transaction Value × Applicable GST Rate

Example: A Maharashtra company provides items valued ₹1,00,000 to a Karnataka customer at an 18% GST rate:

• IGST = ₹1,00,000 × 18% = ₹18,000

How to Adjust IGST with CGST and SGST

You can adjust the IGST credit when filing GST returns in the following order:

1. Use IGST credit to offset IGST liability.
2. If any IGST credit remains, use it to offset CGST liability.
3. Use any remaining balance to offset SGST/UTGST liability.

Example:

• IGST Credit: ₹10,000
• IGST Liability: ₹6,000 (adjusted first)
• Remaining IGST Credit: ₹4,000
• CGST Liability: ₹2,000 (adjusted next)
• SGST Liability: ₹2,000 (remaining credit adjusted)

This sequence ensures the optimal use of input tax credits.

FAQs

1. What is inter-state GST?
   Integrated GST (IGST) levied on products or services imported from one state into another.
   
   
2. How would you explain IGST with an example?
   Tax on interstate supplies. Example: IGST is charged on goods sold from Delhi to Maharashtra.
   
   
3. What GST should be applied to the interstate supply?
   IGST is applicable to inter-state supplies.
   
   
4. What is inward supply in GST?
   Inward supply refers to the purchase or receipt of goods or services by a business.
   
   
5. Could you provide an example of an intra-state situation?
   Selling goods within Delhi (e.g., Delhi to Delhi).
   
   
6. What does intrastate mean?
   Intrastate means within the same state.
   
   
7. What is the intrastate tax?
   Intrastate transactions are liable for CGST and SGST taxes.
   
   
8. What is the definition of interstate movement?
   Transfer of goods or services between various states.
   
   
9. What is the antonym of the phrase intrastate?
   Interstate is the opposite of intrastate.
   
   
10. What is supply under GST Section 7?
    Section 7 defines supply as the exchange of goods or services for consideration during business activities.
    
    
11. What is the GST supply limit?
    Goods' GST exemption ceiling is ₹40 lakh; services' is ₹20 lakh.
    
    
12. What does the term intra-UT mean?
    Supply within the same Union Territory.
    
    
13. What does it mean to be interstate?
    Operating or transacting between different states.

Differences between Interstate and Intrastate

In terms of movement or transactions, interstate and intrastate refer to the scope of such movement or transactions—for example, in the context of trade, transport, and taxation.

1. Interstate:

• Refers to activities or transactions that occur between two or more states.
• In GST, an interstate supply involves the supplier and recipient located in different states or Union Territories.
• For interstate transactions, Integrated GST (IGST) is applicable.
• Example: Shipping goods from Maharashtra to Gujarat.

2. Intrastate:

• Refers to activities or transactions that occur within the same state.
• In GST, an intrastate supply means the supplier and recipient are in the same state or Union Territory.
• For intrastate transactions, CGST and SGST are applicable.
• Example: Selling goods within Delhi.

Understanding these distinctions is crucial for accurate tax compliance and logistics planning.

The Four Types of GST

1. Central Goods and Services Tax (CGST):
   • Tax imposed on supplies within the same state.
   • Collected by the central government.
   • Example: A sale within Maharashtra attracts CGST.
2. State Goods and Services Tax (SGST):
   • Levied along with CGST for intrastate supplies.
   • Collected by the state government.
   • Example: A sale within Karnataka attracts SGST.
3. Integrated Goods and Services Tax (IGST):
   • Tax imposed on interstate supplies that travel between different states.
   • Collected by the central government and distributed to the destination state.
   • Example: A sale from Gujarat to Tamil Nadu attracts IGST.
4. Union Territory Goods and Services Tax (UTGST):
   • Union Territories impose taxes on intrastate supplies.
   • Collected by the Union Territory government.
   • Example: A sale within Chandigarh attracts UTGST.